Dropbox dials down its valuation goals as its IPO nears

By Bloomberg

Mar 12, 2018 | 3:20 PM

Dropbox is marketing 36 million shares of Class A common stock for $16 to $18 apiece, according to an SEC filing. (Jaap Arriens / NurPhoto/Sipa USA)

Silicon Valley darling Dropbox Inc. is aiming to go public at a valuation well below the $10 billion it clocked in at after its last private funding round, despite posting healthy revenue growth and turning cash-flow positive in the intervening four years.

The file-sharing company is targeting a public market capitalization of $6.3 billion to $7.1 billion in its initial public offering, according to a filing Monday. Including restricted stock units, that range is $6.7 billion to $7.6 billion.

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The San Francisco company is one of a class of well-funded, closely watched technology companies that have achieved a private valuation of more than $1 billion. Investors wanting to get their hands on the next big thing piled into these "unicorns" in recent years, helping drive up valuations.

The gap between private valuations and public market aspirations highlights the disconnect between the premium that private investors put on potential innovation, and the financials-based analysis that public market shareholders are focused on.

Snap and Blue Apron

This year has seen an early surge in public offerings, with $8 billion of new stock sold in the U.S. in January alone, the biggest month since Alibaba raised $25 billion in its September 2014 IPO. Still, 2017 listing flops such as Snap Inc. and Blue Apron Holdings Inc. — which both have traded below their last private valuation — are fresh in investors' memories.

Dropbox is aiming to raise as much as $648 million in its U.S. IPO, marketing 36 million shares of Class A common stock for $16 to $18 apiece, according to the filing with the U.S. Securities and Exchange Commission. At the high end of its offering size, it would be the third-biggest U.S. IPO by an enterprise technology company in the last three years.

Dropbox also agreed to sell $100 million in stock to Salesforce.com Inc.'s venture capital arm in a private placement concurrent with the IPO, the filing shows. Last week, the companies announced a partnership to integrate and sell Salesforce's customer relationship management technology with Dropbox's storage and collaboration tools.

Drew Houston, co-founder and chief executive of Dropbox, will hold 22% of the shares outstanding after the offering, or 24% of the voting power, according to the filing. Arash Ferdowsi, co-founder and director, will hold 8.8% of the shares.

The pair started Dropbox in 2007. Sequoia Capital, one of Dropbox's early investors, will own a 21.1% stake.

Paying customers

Dropbox has touted its business as a path to unleashing creative energy and inspired work. Dropbox says it has more than 500 million registered users, with 11 million of those paying for added features.

Although the company is inching closer to profitability, Dropbox outlined in its deal prospectus its focus to get more of those users to pay. Investors are sure to have questions for the file-sharing technology leader as it embarks on its marketing roadshow.

The company's revenue increased more than 30% last year to $1.1 billion from $845 million in 2016. In the same period, the company's net losses shrank to $112 million from $210 million.

Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank and Allen & Co. are leading the offering. The company plans to list on Nasdaq Global Select Market under the symbol DBX.

UPDATES:

3:20 p.m.: This article was updated throughout with additional details about Dropbox and about other companies' recent IPOs.